Missing Oil in Iraq Undercuts Progress

An estimated 100,000 to 300,000 barrels of Iraq's daily oil production is unaccounted for, according to a draft report by the federal Government Accountability Office due out this week, ABC News has learned.

At an average price of $50 a barrel, that amounts to between $5 million and $15 million lost every day in oil revenues, which currently fund at least 85 percent of the Iraqi government.

"Since a lot of the country depends on government subsidized gasoline, food rations, without this money, it means there isn't enough for the government to spend on the people," said Pratap Chatterjee, managing editor of CorpWatch and author of "Iraq Inc."

"It is a very critical part of the Iraqi economy," he said.

It's impossible to know precisely how much oil goes missing. After four years of war and $38 billion in aid, Iraq still does not have accurate meters to measure how much is being exported. Therefore, the GAO compared Iraq's official oil production figures with exports and domestic consumption figures.

"When you look at that, there's a discrepancy of a couple of hundred thousand barrels of oil a day," Chatterjee said.

Some Iraqi officials are downplaying the situation, saying that not all the oil is going missing, but that over enthusiastic oil officials are inflating production figures to show reconstruction progress in Iraq.

There could be a degree of truth to that, according to the U.S. Energy Information Administration. The agency does not rely on official Iraqi government figures on oil production because it finds them unreliable, said Erik Kreil, an oil expert with the agency.

Yet analysts insist corruption -- in Kirkuk in the north and Shiite-dominated Basra in the south -- is at least partly to blame, and that in some cases government officials are involved.

"It's a combination of Shiite political parties, people in Shiite government, people who are criminals, people who are contractors," said Anthony Cordesman, an ABC News consultant and military analyst at the Center for Strategic and International Studies in Washington, D.C. "It is a very broad-based network of corruption."

It is a familiar pattern for Iraq, which developed a sophisticated oil smuggling program under Saddam Hussein. In 2002, the GAO reported that an even greater amount of oil was being smuggled out of Iraq, despite an international oil embargo. Analysts say the new smugglers are following the same time-honored smuggling routes Hussein used.

The missing oil is just the tip of the iceberg, according to some analysts. With insurgent attacks on oil pipelines, theft, and losses due to dilapidated infrastructure, a September 2006 report by the U.S. Special Inspector General for Iraq Reconstruction found that Iraq loses an estimated $8 billion dollars a year in potential oil revenues.

The result is both ironic and tragic. Iraq has larger proven oil reserves than any country in the Middle East except Saudi Arabia. But it has to import gas. And much of the imported energy is siphoned off and sold on the black market.

"The fact is that we've given Iraq virtually a broken government. Our aid projects have failed. We've made things almost inherently corrupt," Cordesman said. "And now basically we have run out of the money to try to fix this process."